The SFR Insider ? February 2024 ? SFR Investment Outlook for 2024
With over $6B in single-family rentals (SFRs) acquired, operated, and sold, Roofstock is a leading platform enabling institutional investors, real estate investment trusts (REITs), builders, and global asset managers to buy, manage, and sell SFR properties and build-to-rent (BTR) communities at scale.
Our institutional team represents buyers and sellers on the largest SFR portfolios in the market and has closed transactions totaling over 7,000 homes in the past 24 months. We prize ongoing collaboration with SFR owners and operators across the industry. We’re always available to discuss current market dynamics and offer our insights, irrespective of your current brokerage needs.
SFR Investment Outlook for 2024??
Institutional investors are hitting the ground running in 2024, strong deals are coming to market, and buyers are engaging. Although acquisitions aren’t at 2021 levels, there are green shoots heading into the new year. In conversation with top SFR owners, we’re hearing an increased acceptance of pricing and a desire to go pencils up this coming year. The improving sentiment also aligns with several leading economic indicators.
Economic Summary from Roofstock’s Head of Research and Investment Strategies?
Preliminary Read On 4th Quarter GDP Shows Persistent Growth
The BEA’s preliminary report on fourth-quarter real GDP growth was an annualized 3.3%, significantly exceeding expectations. Growth was slower than it was in the third quarter, but indicates the economy grew at 2.5% for calendar year 2023, a marked acceleration from 1.9% in 2022. The stalwart economic expansion was fueled by consumer and government spending and trade.
Inventories held steady despite a strong increase in the prior quarter. GDP growth is reaffirmed by numerous other economic indicators. Employment and wage growth are holding strong and unemployment has been below 4% for the longest stretch in 50 years. The NAHB’s housing market index increased in December and January. Housing starts were solid in the final quarter of the year, although for calendar year 2023 they were down 9% versus 2022. The NFIB’s small business optimism index also improved in December.
Healthy growth and easing inflation are spurring optimism around a Goldilocks soft-landing scenario for the economy. Recession fears are easing and market expectations for the Fed to begin cutting rates in the first half of this year are rising. But risks remain that growth may not follow this script.
Consumption and government spending are unlikely to maintain their recent pace, the effects of tight monetary policy will be slow to completely unfold, and exogenous factors such as supply-chain disruptions and geopolitical conflict could cause goods prices to spike. Despite these potential challenges, the structural supply and demand factors supporting home values will be little changed and mortgage rates should continue to ease over the course of the year.
Large Investors Expected to Return After a Pause in 2023
With optimism higher for an economic soft landing and the market increasingly anticipating Fed rate cuts, we expect investors to ramp up activity in 2024. Home values have demonstrated resiliency and the significant gap between ownership and rental costs suggests demand for rental homes will remain strong and rents will rise. The expectation for additional investor activity this year was kicked off notably by news that Blackstone intends to take Tricon Residential private – a significant endorsement of the opportunity within SFR that we have heard echoed by other market participants.
Large investors (those owning at least 500 homes) did not completely halt buying in 2023, but they did reduce their activity relative to 2022. Limited buying and modestly higher selling led to a marginal decrease in large investor ownership of about 2.5% during the year, which we see primarily as culling of assets in a strong market rather than a strategic pullback from the sector.
In the accompanying table and chart, we have provided a deeper analysis of purchasing and ownership trends for the 10 most active large investor markets (based on total homes purchased by these investors during the three-year period 2021-23) using data from Roofstock’s Rental Genome. These data reflect a more than 60% decrease in purchases in 2023 on average across the markets, following a nearly 35% acceleration in buying during 2022.
Atlanta experienced one of the sharpest pullbacks in large buyer purchases on a percentage basis but was still notable among these 10 markets for having the highest number of homes purchased. Nearly 5% of every home purchased in Atlanta during 2023 was acquired by a large investor. This was the second highest share of homes purchased in this group of markets, trailing only Fort Worth, which had the smallest percent decrease in purchasing during 2023.
Smaller investors accounted for a much larger share of home purchases in both 2022 and 2023 than large investors, but individual households continue to represent the lion’s share of home purchases across the country. Individual households bought an average of roughly 80% of the homes sold in these 10 markets over the past two years. After their small pullback in ownership in 2023, large investors own an average of just 2.0% of all homes in this group of markets.
Favorable demographics, limited supply, and relative affordability vs. homeownership all favor property fundamentals in SFR in the years ahead. As they have through most economic cycles, home values should hold up well, and rents are expected to rise. Couple this with challenging performance in other property sectors, and larger investors will undoubtedly expand their holdings in the sector.
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Top 10 Markets for Purchases by Investors with 500+ Homes?
Looking for ways to strategically jump into the market in 2024? Get in touch with our team at [email protected]
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Project Fleet
We’re thrilled to present Project Fleet, a 96-home institutional scale portfolio, located in Florida with strong upside.
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Roofstock’s Institutional Event Schedule for 2024?
We're excited to get out in the market and network this year. Check out the events we'll be attending below. If you’re headed to any of these conferences we’d love to connect! ?
Reach out to [email protected] and set up some time with our team.
No Agency/Fiduciary Relationship: This newsletter, the information on the marketplace, and the information received from Roofstock employees is intended for informational and educational purposes only. It is not real estate, investment, or financial planning advice. Roofstock is not your advisor or agent unless expressly specified by Roofstock Realty, LLC. Please consult your own experts for advice in these areas.